Laws and sections by number or title, due dates, pages, and updates.
The transfer of tenancy rights against tenancy premium is a supply of service and is taxable under the Central Goods and Services Tax Act. This rule applies to transactions such as the pagadi system. The levy applies even when stamp duty and registration charges apply to the transfer. The grant of tenancy rights in a residential dwelling for use as a residence against tenancy premium or periodic rent is exempt. The services that an outgoing tenant provides by surrendering the tenancy rights against a portion of the tenancy premium are liable to Goods and Services Tax.
Law this touches
Who is affected
Exceptions
Ask about this circular
Circular No.44/18/2018-CGST
F. No. 341/28/2017-TRU Government of India Ministry of Finance Department of Revenue Tax Research Unit *****
New Delhi, the $2^{\text{nd}}$ May, 2018
To,
The Principal Chief Commissioner/Chief Commissioners/ Principal Commissioner/ Commissioner of Central Tax (All) / The Principal Director Generals/ Director Generals (All)
Madam/Sir,
Subject: Issue related to taxability of ‘tenancy rights’ under GST- regarding
Doubts have been raised as to,-
The issue has been examined. The transfer of tenancy rights against tenancy premium which is also known as “pagadi system” is prevalent in some States. In this system the tenant acquires, tenancy rights in the property against payment of tenancy premium(pagadi). The landlord may be owner of the property but the possession of the same lies with the tenant. The tenant pays periodic rent to the landlord as long as he occupies the property. The tenant also usually has the option to sell the tenancy right of the said property and in such a case has to share a percentage of the proceed with owner of land, as laid down in their tenancy agreement. Alternatively, the landlord pays to tenant the prevailing tenancy premium to get the property vacated. Such properties in Maharashtra are governed by Maharashtra Rent Control Act, 1999.
As per section 9(1) of the CGST Act there shall be levied central tax on the intra-State supplies of services. The scope of supply includes all forms of supply of goods and services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business and also includes the activities specified in Schedule II. The activity of transfer of tenancy right against consideration in the form of tenancy premium is a supply of service liable to GST. It is a form of lease or renting of property and such activity is specifically declared to be a service in para 2 of Schedule II i.e. any lease, tenancy, easement, licence to occupy land is a supply of services
The contention that stamp duty and registration charges is levied on such transfers of tenancy rights, and such transaction thus should not be subjected to GST, is not relevant. Merely because a transaction or a supply involves execution of documents which may require registration and payment of registration fee and stamp duty, would not preclude them from the scope of supply of goods and services and from payment of GST. The transfer of tenancy rights cannot be treated as sale of land or building declared as neither a supply of goods nor of services in para 5 of Schedule III to CGST Act, 2017. Thus a consideration for the said activity shall attract levy of GST.
To sum up, the activity of transfer of ‘tenancy rights’ is squarely covered under the scope of supply and taxable per-se. Transfer of tenancy rights to a new tenant against consideration in the form of tenancy premium is taxable. However, renting of residential dwelling for use as a residence is exempt[Sl. No. 12 of notification No. 12/2017-Central Tax(Rate)]. Hence, grant of tenancy rights in a residential dwelling for use as residence dwelling against tenancy premium or periodic rent or both is exempt. As regards services provided by outgoing tenant by way of surrendering the tenancy rights against consideration in the form of a portion of tenancy premium is liable to GST.
Difficulty if any, in the implementation of this circular may be brought to the notice of the Board.
Yours Faithfully,
Harsh Singh Technical Officer (TRU) Email: harshsingh.irs@gov.in
